The risks of pro bono work
Government regulations are making some advisers reluctant to carry out personalised advice on a pro bono basis, Institute of Financial Advisers president Nigel Tate says.
Wednesday, August 15th 2012, 7:01AM 
1 Comment
by Niko Kloeten
The Code of Conduct for Authorised Financial Advisers makes no distinction between advice paid for and advice given for free and according to Tate this makes pro bono advice too risky and time-consuming if done on a personalised basis, which requires a written plan.
This, he said, could take up to a day to complete, with a couple of hours spent on data collection from the client and up to four hours on plan writing.
He said the issue had been highlighted in the lead-up to the first annual Money Week, run by the Commission for Financial Literacy and Retirement Income, which will take place in the first week of September.
More than 50 advisers have already signed up to donate their time for the event, but they will be providing only generic "class advice" to those who come seeking their services.
Tate said if the people who used the free service wanted personalised advice they would probably have to pay for it, although it was up to each adviser to decide and advice could be given at a discount.
However, Retirement Commissioner Diana Crossan said the aim of the event was more to provide information and get people thinking about financial issues affecting their lives, rather than about making specific investment plans.
"It's about raising awareness; for some people talking to someone one on one is a very good thing to do. The IFA is offering to have one-on-ones with people who may not have thought about insurance or wills or managing their debts."
The response from advisers had been "fantastic" and would add "another dimension" to the week, Crossan said.
"Some people will come in with a question that can be easily answered while others will be saying, ‘where do I start?'"
The FMA said the focus of its first 15 months had been "overseeing the new regulatory environment which requires all financial advisers to be licensed or registered, including QFE advisers.
"In the pro bono area, some Canterbury-based AFAs have volunteered to provide a free financial advice service for red zone residents. There are protocols around the type and limits of the advice they are providing and the AFAs involved are subject to legal and regulatory obligations from which they are not exempt.
"Free advice offered during Money Week will be subject to those same obligations."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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But I have extreme difficulty in seeing that such consultations can be provided as class advice, as the article suggests.
When I go to my Doctor with a sore toe I am going to get him to tell me what is wrong with my toe. I don't want him to tell me "well Murray, in summer a number of men in their 50's come and see me with red and sore toes and sometimes it is gout. But other times it is not".
Those comments would be class advice; but I want to know about what is wrong with my toe, which is personalised advice.
And I think my GP case above is similar to most people seeking financial advice in a one-on-one context. They want solutions to their issues
I fail to see how in the greatest majority of cases, a person talking one to one with a financial adviser about the person's own circumstances can be class advice.
The legislation says (Financial Advisers Act sec 15)
15 When financial adviser service is personalised service or class service
(1) A financial adviser service is a personalised service if—
(a) it is given to, or in respect of, a named client or a client that is otherwise readily identifiable by the financial adviser; and
(b) either—
(i) the financial adviser has taken into account the client's particular financial situation or goals (or any 1 or more of them) in providing the service; or
(ii) a client would, in the circumstances in which the service is provided, reasonably expect the financial adviser to take into account the client's particular financial situation or goals (or any 1 or more of them).
In the pro bono situation (which I expect will be up to an hour with a real person and a real adviser) the facts of (a) will clearly apply.
The presumption that I would make would be that the client would be expecting whatever the adviser said to be based on a prescription for them (in the same way I expect my GP to prescribe about me).
So in most cases I would expect (b) (ii) would apply.
That to me means the advice is most likely to be personalised advice and therefore subject to all the full force of the law.
That's why I don't think i will ever assist in Money week type promotions. My intended "good deed" comes at too great a cost to me.
Yes, this interpretation seems to be against the interests of the potential consumer. But that folks is one of the (unintended) consequences of the new regime.
I am always open to having the errors of my ways pointed out to me, so would love to see a robust debate here on the issue.
But I am not holding my breathe.